Global supply chains bring increased risks of disruption from events such as natural disasters. By understanding and planning for such risks, Cisco Systems has improved its supply chain resilience.

Many more companies now find themselves at increasing risk of supply chain disruption. A recent study by Aon Risk Solutions found that, on average, the percentage of global companies reporting a loss of income due to a supply chain disruption increased from 28% in 2011 to 42% in 2013.

At many companies, the resiliency of the supply chain has not kept pace with the continually rising level of logistical complexity. Most supply chain managers have yet to do much about this problem. A recent MIT Scale Network study found that even many large companies are unable to create contingency rules and procedures for operations during a complex, high-risk event. In fact, approximately 60% of the surveyed managers either do not actively work on supply chain risk management or do not consider their company’s risk management practices effective. These managers lack a framework to guide them in the deployment of their risk management practices. Many understand so little about their risks that they don’t even know what kind of framework would fit the particular supply chain dynamics they face.

The example of some companies that have more advanced risk management systems suggests that it doesn’t have to be this way. Cisco Systems Inc. is one of a handful of companies — others include Coca-Cola, Whirlpool and Procter & Gamble — that have tried to understand and measure the operational and financial vulnerabilities that could threaten the smooth operation of their supply chains. Supply chain managers at Cisco have learned to integrate supply chain design and supply chain risk management, balancing proactive mitigation capabilities with reactive capabilities in order to keep the company’s supply chain as resilient, efficient and profitable as possible. As John Chambers, chairman and CEO of Cisco Systems, commented, “In an increasingly networked world, supply chain risk management is top of mind in global organizations as well as a key differentiator for leading value-chain organizations.”

Reconfiguring the Supply Chain

Just nine years ago, Cisco coped with disasters the same way most companies do: with difficulty.